RBI eases burden for home loan borrowers with 25 basis points repo rate cut
RBI's repo rate cut by 25 bps to 6.25% post-Budget 2025 brings significant savings for home loan borrowers. Existing and new buyers can benefit from lower EMIs
Following Budget 2025, where the finance minister announced zero income tax for salaries up to ₹12 lakh, the RBI cut the repo rate by 25 bps to 6.25% on February 7, bringing much-needed relief for home loan borrowers.
It is to be noted that the RBI increased the repo state by 250 basis points from May 2022 to February 2023, bringing up the repo rate from 4% to 6.5%. This put pressure on existing and prospective home buyers who had to fork out a higher EMI or extend the home loan tenure.
“Both existing and new borrowers under floating rate loans stand to benefit from lower interest rates, improving loan affordability and accessibility. Fixed-rate loan borrowers will remain unaffected by the rate cut. That said, banks and housing finance companies may take some time to fully transmit the benefits of this rate cut to borrowers, depending on their policies and rate cycle,” says Atul Monga, co-founder and CEO, BASIC Home Loan.
How will the rate cut impact your EMIs?
Suppose you bought a property worth ₹1 crore and took a loan of ₹80 lakh for a 20-year period at a 9% interest rate. At present, you will be paying an EMI of ₹71,978. If your interest rate drops to 8.75%, your monthly EMI will be ₹70,697. This might not seem like a significant reduction, but the total interest you need to pay on your loan will now decrease from ₹92.74 lakh to ₹89.67 lakh.
For new homebuyers, this will mean a loan at a lower rate of interest and the possibility of affording a slightly more expensive property. It is essential to note that the rate cut comes after the Budget 2025 announced a tax cut that will help salaried individuals earning up to ₹12 lakh save ₹80,000 annually in taxes, thus allowing them to buy a higher-priced property.
If someone takes a ₹30 lakh loan to buy an apartment worth ₹50 lakh, at an interest rate of 8.75% and a tenure of 20 years, he will pay ₹26,511 as EMI. At a 9% interest rate, he would pay ₹26,992 as EMI.
Will a rate cut boost housing demand?
Lower borrowing costs are expected to boost demand for home loans in the real estate market, making housing more affordable and stimulating sector growth. This is a positive development for homebuyers and developers, potentially leading to increased sales and new project launches.
“We hope interest rate cuts will be passed on to the consumer, and the home loan rates become more attractive, which combined with the earlier announced tax incentives spur residential demand across the different price brackets, but especially in the below ₹50 lakh category, which has seen a continued weakening of demand,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India, a real estate consultant.
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